Andy Green talks to CNBC Europe about Logica's 2010 Interim Results

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Video Transcript:

Name: Andy Green
Position: CEO
Company: Logica
Date: 06/08/2010
Time: 09:15 CET
Channel: CNBC in Europe
Duration: 7 mins 10 secs

Interview with Andy Green

Maithreyi Seetharaman
Shares in Logica are trading higher. That's after the IT services provider said it sees a return to growth in the second half, driven by strong outsourcing. Sales and adjusted operating profits slipped in the first 6 months of the year. Andy Green, he's the CEO of Logica, joins us now. Thanks very much for coming in to Breakdown these numbers.

Andy Green
Morning.

Maithreyi Seetharaman
It's interesting because your stocks taken quite a hit since this new government came into place. There's a lot of concern about how you're going to work with them and keep your revenues and your sales intact as they go into this austerity mode. What's your outlook when it comes for business with this coalition government and austerity?

Andy Green
Well the first thing to say we're a very well balanced business, you know. Last year we were doing really well in public sector. It was pretty tough, very tough in financial services and industry, distribution and transport. As we go into this year we've got the balance of the business, we've got France doing well, we've got financial services doing well, IDT doing well. And that's the point about having a balanced organisation like ours in terms of what it allows us to manage. Now we had great growth last year in the public sector in the UK, about 11%, this half year we've fallen by 1%, now you know with understanding our business this is the bit of business everybody's talking about is less than 10% of our turnover. Now we know that we have to play our part. We're absolutely supportive of the government in bringing in efficiency measures and in the short term we're working with them to make sure there's no waste in the way they work with us. So with all the contracts we've got going on, we want to go in and we want to help them make sure they're tuned in the best way possible and help them come to a good conclusion between us. That will affect our revenue somewhat, our profit much less in my view because we can help them by taking work offshore or by cutting back things that really don't need to be done.

But when it comes to the long term, you know, this is a real opportunity. How do you cut the cost of a department by 25 or 40% if you don't do the things that the private sector do? Automate, do shared services, outsource to the private sector. These are inevitably going to have to happen. So we're really up on the public sector over the medium term. You can see in France our business grew 17% this half year, in international in Australia and in the Middle East it's growing very well, so we have, you know, we've got a great belief in the public sector here and elsewhere.

Maithreyi Seetharaman
So you're not too worried about austerity across Europe and that theme picking up everywhere?

Andy Green
No, we cannot see it as anything other than an opportunity. Just think about what's happening. Fewer and fewer people in work, more and more ageing people, they have to be served efficiently. They have to be served efficiently. We know that when we do our banking we do it online and we get better service for ourselves. Why don't we do all that sort of thing with our public sector transactions? It has to come. We have to get the efficiency and the productivity into the public sector and technology drives that.

Anna Edwards
It sounds like that's a medium term

Andy Green
Absolutely.

Anna Edwards
reason to get involved in Logica though. How much short term pain is that gonna cause do you think?

Andy Green
Well you know the short term pain as I said, it's 10% of our turnover. It's gone from growing a double digit to minus 1 at the moment. We've said we expect our UK business to be flat, first half on second half. It gives you some areas. You know we think well over done, you know.

Anna Edwards
OK. Can I just move on and talk about your dividend, because you said that you're going to be increasing it

Andy Green
Sure.

Anna Edwards
which I'm sure is welcomed by many shareholders and forecasting a steady increase in your dividends into the future. We've been sitting here with a number of CEO's and trying to work out, you know, a lot of corporates are in a really good position at the moment, they've done a lot of work to take costs out of their business. Now they're faced with the decision, what do we do with that money? You've decided to return it to shareholders, not maybe are you also investing in a lot more CapEx, are you taking on people, are you hiring people? Why the decision on the dividend?

Andy Green
Firstly we're hiring people a lot. We hired 3,000 people in the first half of the year, we'll hire another 3,000 in the second half of the year. A lot in France, 500 because the business is growing 6%. A lot in Bangalore, Chenai and in Morocco because our work is steadily shifting out of Europe partly because of those demographics again. So we invest in people first and foremost. Lots of things we have to do in that. Our CapEx is relatively small as a business. Our decision is should we invest in some inorganic things to support, should we return shareholders, we've gone for a balanced approach. We think it's right for our shareholders to see the returns of the good cash generation we've had. Right the way through this downturn we've generated a lot of cash, you know, we're an IT services company who generates cash and we intend to keep generating cash. We think it's an important signal of confidence for the future and it's what our shareholders will appreciate, I know that. I think the analysts don't quite understand it but when I talk to shareholders they're pretty pleased about it.

Maithreyi Seetharaman
It's really interesting that you talk about all the outsourcing because we've got some very conflicting messages from major outsourcers and major back office folks in say for example India, TCS's of the world, the Infosys of the world saying clients are back but they're not back in the way that they should be and that they're very concerned about the second half of the year. So when you talk about this outsourcing mode, how do the two tie up?

Andy Green
No, let's be realistic. What, you know, I'm not sitting here dancing in the streets, I'm saying we'll keep our margins constants and our revenue constants against 2009, which wasn't the best year in the universe. So you know, we're being quite realistic about this. We do see a return to growth. What I see happening is a bit like our colleague over there was saying, you know, when you look at what CEOs are doing they're saying yeah we've got to live in this environment, we do need to decide what's core and non-core, get the cost reductions, that's why our outsourcing services business is growing 9% because we're able to help clients, particularly in non-English speaking parts of the world, make that transition very well. But they're not yet saying, yeah this is the time I want to go to the bank and invest a big piece of money in some more automation and New ER pistons and that sort of thing. At the moment they're saying, you know, I probably don't want to borrow any more money from my bank, let's wait and see what's going on.

Kit Juckes
And do you think looking forwards from that in the sense hope so you're going to answer the first half of my question which is, if you were faced with shall I borrow more or not, you'd rather I'll reinvest the cash I've got but let's not let's not get all over-excited. Do you see your future growing away from Europe more and more into the Far East and into emerging markets pretty much every guest we've had on this morning is talking about that being the growth area? Is that somewhere where fixing the efficiencies in I don't know Chinese public services is the next big target for you?

Andy Green
No, we're very careful about these things. We have strong positions, you know, 9,000 people in France, we're a market leader in Sweden, we have very strong positions in our markets. We like that. If you're known people come to you, they work with you, it's very important. We do like planting flags all over the place. We have good businesses that are starting up in Brazil around utilities and financial services in India, where we've got very strong expertise. If we can build on those we'd be delighted, but our basic belief is there's plenty of business for us to grow in here in Europe that the trends in what's going on in Europe require European competitive industry to use technology better and that's Logica's core mission.

Anna Edwards
Andy thank you very much for joining us. Andy Green the CEO of Logica

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